Texas Court Sheds Light on Fraud, Kickback and Whistleblower Issues

A recent decision from a federal district court in Texas analyzes a number of controversial physician-hospital relationships and explores the limits on qui tam whistleblower suits. In U.S. ex. Rel. Parikh v. Citizens Medical Center, three cardiologists who formerly practiced at Citizens sued the hospital, its administrator and a cardiologist employed by the hospital, alleging a variety of False Claims Act (FCA) violations including improper bonuses and financial incentives to physicians, violating Texas’s ban on the corporate practice of medicine and providing worthless and unnecessary medical services. The hospital moved to dismiss the suit, asserting that the whistleblower plaintiffs failed to plead sufficient grounds for a FCA violation and citing governmental immunity as a county-owned hospital. The court agreed to dismiss some, but not all, of the counts and allowed the case to proceed.

The FCA permits private individuals who provide original information of fraud (referred to as “relators”) to bring suit on behalf of the federal government and to share in the recovery, which can include treble damages and civil penalties of up to $11,000 per violation. The three cardiologists claim that the hospital violated the FCA by, among other acts, paying emergency room physicians bonuses in exchange for referring cardiac cases to their hospital-employed competitors, paying those employed physicians excessive compensation and entering into other improper deals with other physicians on the hospital’s staff designed to induce them to refer Medicare business to the hospital and its affiliates (and to steer that business away from the cardiologists).